Selling Your Practice: Considerations for RIAs

Terms of Agreement

But all merger agreements are not created equal, and when contemplating a merger, RIA owners should be aware of these differences and the options available. Employment terms; the seller’s tax treatment on the purchase; who controls communication with the clients; autonomy over investment design; retention of existing staff; terms governing an earn-out or backend growth bonuses; and other factors are all important to consider.

Forms of compensation
Compensation to RIA owners by acquiring firms can take a variety of forms, including cash upon purchase, equity in the larger firm, and bonuses for attaining certain benchmarks, among other possibilities. Final agreements may include various proportions of all of these, so prospective sellers should have a clear idea of their objectives when going into any merger negotiation.

One critical question many sellers face is: “Is the amount of equity the buyer wants me to accept too high?” When a significant part of a buyout offer is in the form of stock in the acquiring company, there are a few possible motives. Often, the acquirer is conserving cash with the intention of pursuing multiple acquisitions in the near future. At the same time, offering equity can be an intentional strategy to encourage alignment, making sure new partners are invested in the same outcomes as existing stakeholders.

When everyone on the team owns a stake, their interests naturally align. A culture in which each person benefits from increases in enterprise value tends to foster genuine collaboration and a more supportive work environment. Therefore, while receiving a large equity portion can sometimes be a signal that the acquirer is limiting cash outflow for strategic reasons, it can also be a thoughtful way to build unity and shared success among all merger participants.

Ultimately, sellers should consider not just the proportion of equity, but the underlying strategy and culture of the acquiring firm. Understanding these motivations can help clarify whether the offer aligns with the seller’s goals and provides the kind of partnership desired.

Sellers often focus most of their attention on the purchase price in a business sale, but this is only one element of total compensation. Many of a seller's long-term earnings also come from future salary or ongoing revenue sharing arrangements after the sale. In fact, deals offering the highest up-front purchase price tend to include much lower future compensation: often just a modest share of revenue or salary and bonus structure, which can result in reduced motivation to help the business grow.

For example, a seller might receive a high purchase price but only retain a 20% share of revenue going forward. By contrast, for sellers or advisors planning to remain and work in the business for more than three years, a deal with a lower up-front payment but a 40–50% share of future revenues can be far more lucrative and motivating over the long run. Understanding the balance between purchase price and ongoing compensation is critical to structuring an agreement that rewards the seller for continued growth and involvement.

Two more important points close out this section on compensation. First, it is imperative that a seller understands and believes in the acquirer’s strategic plan to grow the equity value of the firm. In the ideal situation, the seller should anticipate that their equity stake in the acquiring firm has a high probability of growing faster than the seller’s stand-alone business. Second, taxes matter. With RIAs, mergers can be structured so the seller gets capital gains tax treatment rather than ordinary income. Whether you are an RIA looking to sell or an IBD/wirehouse advisor looking for a new home, make sure you explore options on how the transaction can be structured to maximize the amount you take home.

Platform and investment models
Some merger agreements stipulate a time frame by which the purchased firm must adopt the parent firm’s platform and investment models. Depending on the presence or absence of layered fees, these requirements can disadvantage the acquired firm and its clients.

Many RIAs feel a part of the value they provide to their clients comes in the form of personalized investment management, and they are reluctant to put their clients into firm models that afford little room for customization around the needs of certain clients. Other advisors readily embrace firm models because this gives them more time to engage with existing clients and bring in new business.

Marketing and promotion
Often, smaller RIAs are largely a product of a founder’s personality and “voice.” This can pertain to a variety of aspects of the firm’s business, including marketing outreach, client communication and service, and public image. When contemplating a merger, RIA owners are well advised to carefully consider the agreement’s provisions for marketing, continuity of client communications, and other factors that impinge upon the way the RIA will be able to communicate with and relate to both clients and prospects.

While the acquiring firm will almost certainly have standards for branding, communication, and so forth, the agreement should also ideally allow the acquired firm to maintain the essential traits that attracted its clients in the first place.

On the other hand, it should be noted that larger RIAs typically invest significantly in marketing: social media, streamlined email correspondence, industry publications (often ghostwritten for advisors), and other marketing practices that can offer a welcome change from the boot-strapped marketing budget and more constrained marketing channels that are features of many smaller RIAs.

Get Help

Certainly, this is not an exhaustive list of considerations for RIAs considering a merger offer. In fact, one of the best investments a firm can make may be acquiring the services of an “advisor’s advisor,” a professional who is both familiar with the industry and experienced in helping other firms negotiate successful transactions.

Although the owner’s CPA and attorney should certainly be involved in the taxation and liability questions, an advisor who is experienced in the valuation and sale or merger of similar firms can be of tremendous help in forging an agreement that is best for the individual RIA and all other interested parties.

SOURCES

Bruce Kelly, “RIA Consolidators Are Gobbling Up Market Share: Cerulli,” Investment News, November 13, 2024: https://www.investmentnews.com/ria-news/ria-consolidators-are-gobbling-up-market-share-cerulli/258172

Fidelity Investments, “Fidelity’s Q1 2025 Mergers and Acquisitions Report,” May 30, 2025, https://clearingcustody.fidelity.com/insights/topics/running-your-business/fidelity-q1-2025-mergers-acquisitions-report

Mac O’Brien is chief growth officer at Rothschild Wealth Partners™ headquartered in Chicago, where he is responsible for driving the firm’s expansion strategy with a focus on identifying and integrating acquisition opportunities that align with the firm’s long-term vision. Mac has more than two decades of experience in financial services, most recently serving as head of Investment U.S. Distribution at Morningstar Wealth, where he led national distribution efforts and collaborated with leading broker/dealers, financial advisors, and RIAs across the country. In this role, he played a key part in building and executing a nationwide growth strategy while managing a high-performing sales organization. Rothschild Wealth, LLC, an SEC-Registered investment advisor and Rothschild Investment, LLC, an SEC-Registered investment advisor and broker-dealer, member FINRA/SIPC. Rothschild Wealth, LLC and Rothschild Investment, LLC are affiliates and collectively referred to as Rothschild Wealth Partners TM. Founded In 1908.

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